Automatically increasing pension contributions by 1% a year for five years could boost retirement incomes by up to a half, according to research by Barrie & Hibbert, a financial risk consultancy.
The research shows a 25 year-old with pension contributions at 10% of salary could expect a pension worth 42% of final salary on retirement at 65. Increasing contributions by just 1% a year for five years could give the same person a pension worth 62% of final salary.
Barrie & Hibbert also suggests few savers would opt out if such increases were automatic.
Philip Mowbray, head of retail financial planning at Barrie & Hibbert, says: “Experiments in the US show that if contributions are automatically increased, at a gradual rate, people will not jump ship, and can expect a significantly better retirement income as a result.”
Mowbray says the idea is uncommon in the UK because additional complexity to plans is costly for providers.
He also says financial planning technology will become increasingly important to communicate with scheme members.
He says: “Our systems will create projections of the future value of your own pension plan. A lot of it’s about creating an immediate response, something quite interactive for a scheme member to engage with, and ensuring anything can be integrated into the administration process. Communication has to be immediate.”
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